limited partnership

limited partnership

n. a special type of partnership which is very common when people need funding for a business, or when they are putting together an investment in a real estate development. A limited partnership requires a written agreement between the business management, who is (are) general partner or partners, and all of the limited partners. Each limited partner makes an investment of funds into the partnership and is supposed to receive a pre-stated share of the profit, which is ordinarily greater than that of each of the general partners up to a point (such as return of the investment), and, thereafter, the limited partners will receive a lesser share than the general partner(s). The limited partners also will receive the tax benefit of a "passed through" loss (a personal income tax deduction for part of the loss) during the development stages of the partnership when the expenses exceed any receipts. Quite often there is also a provision for eventual buy-out of the limited partners by the general partner(s). The limited partners may not participate in the management decisions of the partnership or they will lose their limited partnership status. They do have the power to vote to remove the general partner(s), although usually the partnership agreement is structured so that such removal is virtually impossible unless the general partner in question has committed fraud. Since the limited investors have no control of the conduct of the partnership they should make sure they have considerable knowledge about the reputation and record of the general partner(s) and the type of business. In fact, state laws require that there be some pre-existing acquaintanceship between the general and the limited partners or a detailed prospectus provided by the general partner(s) meeting very stringent and specific federal requirements of disclosure. The maximum number of limited partners is set by state law to prevent using interests in the limited partnership as if they were shares of stock in a corporation. In addition to priority in profit, tax deductions, and potential share in the success of the enterprise, the limited partner is "limited" in potential loss, since all he/she can lose is his/her investment, and the general partners alone are subject to claims, debts in bankruptcy and lawsuits against the partnership. Limited partnerships must file their name and names and addresses of general partners with the Secretary of State or other designated officer in the state in which the partnership is created so the public can find out who the responsible parties are. Like a corporation, a limited partnership may not have a name which is too similar to another limited partnership or corporation. (See: partnership, limited liability, partner, general partner)

limited partnership

a partnership under which it is possible for a person to become a partner upon terms that his liability to the creditors of the firm should be strictly limited (rather like that of a shareholder in a company). Such a person is in the position of a sleeping partner with limited liability. See also LIMITED LIABILITY PARTNERSHIP.

1402(a)(13) generally excludes limited partners of limited partnerships from self-employment tax; however, a limited partner does pay self-employment tax on guaranteed payments received from the partnership for services.

9728002, the Internal Revenue Service ruled that legal and accounting fees resulting from a lawsuit filed by limited partners against a company's general partners could be deducted only as a miscellaneous itemized deduction.

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